End of Service Calculation in Saudi Arabia: A Clear EOSB Guide
Learn how to calculate the end-of-service benefit under the Saudi Labor Law: the Article 84 formula, resignation fractions, cases that earn the full award, and worked examples you can check yourself.
This guide is general information, not legal advice. Always check the current text of the Saudi Labor Law on laws.boe.gov.sa and guidance from the Ministry of Human Resources and Social Development on hrsd.gov.sa before settling a final account.
What the end-of-service award is
When an employment relationship ends in the Saudi private sector, the employer must pay the worker an end-of-service award (EOSB), often called gratuity or mukafa'at nihayat al-khidma. It rewards the length of service and is paid on top of any unpaid salary, overtime or leave balance owed at the end of the contract.
The amount is not a matter of company policy. It is set by the Labor Law, mainly Articles 84 to 88, so every employer in the Kingdom calculates it the same way. Getting it wrong can lead to a complaint and a labor dispute, which is why many companies use a gratuity calculator or payroll software rather than spreadsheets.
The Article 84 formula
Article 84 sets the basic calculation for the full award:
- First five years: half a month's wage for each year of service.
- Every year after the first five: one full month's wage for each year.
- Part-years: the worker is entitled to a proportionate share for any fraction of a year.
Written as a formula, for a worker with total service of Y years and a last monthly wage of W:
- If Y is 5 or less: award = Y × W × 0.5
- If Y is more than 5: award = (5 × W × 0.5) + ((Y − 5) × W)
For part-years, convert the months or days into a fraction of a year. For example, 4 years and 6 months is 4.5 years, and 7 years and 3 months is 7.25 years. This full award is what the worker receives when the employer ends the contract, when a fixed-term contract expires, or in the other cases where no reduction applies.
When no award is due
Under Article 80, an employer may dismiss a worker without an award for specific serious misconduct listed in the law, after giving the worker a chance to state their objection. These cases are narrow, so take legal advice before relying on them.
Which wage to use
Article 84 says the award is calculated on the basis of the last wage, not an average of the years worked. The Labor Law defines the wage used for entitlements as the actual wage: the basic wage plus the regular allowances the worker receives, such as housing and transport, according to the contract.
Two practical points:
- Commissions and sales percentages: Article 86 allows the employer and worker to agree that commissions, sales percentages or similar variable pay are excluded from the wage used for the award. Check the employment contract.
- Salary changes: because the last wage is used, a raise in the final year increases the award for every year of service. Make sure the wage in your payroll system matches the latest contract and GOSI record.
Resignation: Article 85 fractions
If the worker resigns, Article 85 reduces the award according to continuous service:
| Continuous service at resignation | Share of the full award |
|---|---|
| Less than 2 years | Nothing |
| 2 years up to 5 years | One third (1/3) |
| More than 5 and less than 10 years | Two thirds (2/3) |
| 10 years or more | Full award |
Always calculate the full Article 84 award first, then apply the fraction. Do not apply the fraction only to the first five years.
When the full award applies
Some exits are treated differently from a normal resignation:
- Article 87 – force majeure: a worker who leaves because of force majeure beyond their control receives the full award.
- Article 87 – female workers: a female worker receives the full award if she ends the contract within six months of her marriage contract, or within three months of giving birth.
- Article 81 – employer breach: a worker who leaves because the employer failed to meet its essential obligations, acted fraudulently or abused the worker keeps all statutory rights, so the exit is not treated as an ordinary resignation.
When must it be paid?
Article 88 requires the employer to settle the worker's dues within one week of the end of the relationship if the employer ended it, or within two weeks if the worker ended it. The employer may deduct proven work-related debts owed by the worker.
Worked examples
The table below uses the last monthly wage (basic plus regular allowances). Amounts are in Saudi riyals.
| Case | Service and wage | Full award (Art. 84) | Amount due |
|---|---|---|---|
| A. Contract ended by employer | 3 years, SAR 6,000 | 3 × 6,000 × 0.5 = SAR 9,000 | SAR 9,000 |
| B. Resignation | 4 years 6 months, SAR 9,000 | 4.5 × 9,000 × 0.5 = SAR 20,250 | 1/3 = SAR 6,750 |
| C. Resignation | 7 years, SAR 10,000 | (5 × 10,000 × 0.5) + (2 × 10,000) = 25,000 + 20,000 = SAR 45,000 | 2/3 = SAR 30,000 |
| D. Resignation | 12 years 6 months, SAR 8,000 | (5 × 8,000 × 0.5) + (7.5 × 8,000) = 20,000 + 60,000 = SAR 80,000 | Full = SAR 80,000 |
Notice case C: the same worker dismissed by the employer, or leaving under one of the Article 87 cases, would receive the full SAR 45,000 instead of SAR 30,000. The reason for leaving matters as much as the years of service.
Tips for HR and payroll teams
- Accrue monthly. Book an end-of-service provision every month so the liability is already in your accounts when someone leaves.
- Keep joining dates clean. Service is counted from the actual start date; unpaid leave and contract transfers should be recorded clearly so the years are not disputed.
- Record the exit reason. Termination, contract expiry, resignation or an Article 87 case each lead to a different amount, so store the reason with supporting documents.
- Use one wage definition. Agree in the contract which allowances form the wage and whether commissions are excluded under Article 86.
- Settle on time. Prepare the final settlement before the last working day so you can meet the Article 88 deadlines.
Doing this by hand for every leaver is slow and error-prone. AxoOne Payroll calculates end-of-service from the rules you set, keeps the accrual up to date every month and produces the final settlement together with salary, leave and deductions. It works with AxoOne HR so joining dates, contracts and exit reasons live in one place.
Calculate end of service without spreadsheets
See how AxoOne Payroll for Saudi Arabia handles gratuity, monthly accruals and final settlements. Book a free demo with our Riyadh team.
Frequently asked questions
How is end of service calculated in Saudi Arabia?
Under Article 84 of the Saudi Labor Law, the full award is half a month's wage for each of the first five years and one month's wage for each year after that, based on the last wage, with part-years paid proportionately. Reductions apply if the worker resigns.
Do I get end of service if I resign before 2 years?
No. Under Article 85, a worker who resigns with less than two years of continuous service is not entitled to an end-of-service award, unless one of the Article 87 exceptions applies, such as force majeure or the marriage and childbirth cases for female workers.
Is the gratuity calculated on basic salary only?
The law uses the last wage, defined as the actual wage: basic salary plus regular allowances such as housing and transport. Article 86 allows the parties to agree that commissions or sales percentages are excluded. Check your contract for the exact definition.
How much do I get if I resign after 7 years?
Between five and ten years of continuous service, a resigning worker receives two thirds of the full award. For example, with a last wage of SAR 10,000, the full award is SAR 45,000 and two thirds is SAR 30,000.
When must the employer pay the end-of-service award?
Article 88 requires settlement within one week after the relationship ends if the employer ended it, or within two weeks if the worker ended it. Employers can deduct proven work-related debts owed by the worker.
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